Unbundling Attributes to Reveal More Value
At the end of August, standard setter Verra issued a different sort of methodology from its norm. Rather than setting the rules for funding an activity that lowers carbon emissions, this new Verra methodology lets a developer seek funding for saving time. The activity, supplying more efficient cookstoves, has been used for carbon avoidance crediting. But by isolating a separate benefit of the same activity, the new methodology highlights that there is other value in many carbon projects that is very likely being under-recognized.
Verra’s methodology, called Time Savings From Improved Cookstoves, captures the hours per day saved in both gathering firewood/biomass and cooking (more efficient cookstoves require less fuel and cook faster). The freeing up of such time allows (primarily) women to pursue other activities of greater economic, societal and personal value. The methodology was written by C-Quest Capital, one of the largest carbon project developers globally.
The idea that carbon emission avoidance activities have other benefits is not new. These so-called “co-benefits” are customarily denoted as progressing United Nations Sustainable Development Goals, or SDGs. Cookstoves, for example, are thought to advance SDG 3 (improved health), SDG 5 (gender equality), SDG 7 (modern energy and increased energy efficiency), and SDG 8 (enhancement of job opportunities). Thus, a buyer of carbon offsets can choose credits that have specific SDGs, or that have a minimum number of SDGs, to make a societal contribution beyond climate mitigation.
Carbon offset credits with SDGs frequently carry a premium to those without. For example, ACX Exchange-traded Global Nature Tonne Plus (GNT+) series contracts, which have certified co-benefits, currently trade at a ~$5/ton premium to ACX’s GNT contracts of similar vintage (note: with a contract one is buying credits selected by the exchange from projects that have specified attributes rather than from a specific project).
Yet, it is almost impossible to imagine that such premia reflect a true market assessment of the value for these SDGs. That’s where unbundling these different attributes comes in: it spurs independent analysis of their value. Admittedly, assessing that value may not be easy. For example, for time savings, it is plausible to quantify hours (the Verra methodology relies on surveys), which lends itself to a crediting methodology. However, academic literature has shown both a wide range in estimates for hours saved and acknowledged that more work must be done to value them.
With focus, the net effect of adding a time-savings consideration is most likely that it will put greater value overall on the activity. It may well be that this “value of time” largely remains ‘bundled” with carbon offset crediting, as opposed to widely trading as a separate security. But the point is that through the act of unbundling, it will have fostered a process to accord value to an activity more consistent with its societal impact.
To date, unbundling has been introduced “the other way”, i.e. to give value for environmental attributes of commercial products. Examples include Renewable Energy Credits (RECs) and, more recently, the crediting mechanisms for differentiated natural gas from Xpansiv (Methane Performance Credits) and EarnDLT (Certified Emissions Tokens). These gas crediting mechanisms are allowing society to put a value on avoided methane, which is now finding its way into buyers’ RFPs for “bundled” natural gas, i.e. they will buy differentiated gas and are offering to pay a modest premium for the relatively lower climate impact of that gas.
It is tempting to suggest that this new time savings credit has an ambition that would have been better received two years ago. Then, there was a surge of interest in carbon offset crediting that corresponded with an awakening to the understanding that the private sector needed to be forceful actors in addressing global warming and biodiversity decline. Further, there was a collective conversation about valuing things that were not typically given much weight, including the longer-term financial risks of climate inaction. It was before anti-woke legislation and before environmental advocates waged campaigns against carbon offsetting practices. Yet if we acknowledge that communities (and businesses) of all sorts must change behavior for the good of the planet, we need to create mechanisms that will adequately fund such behavior change. More transparency about the various ways it makes an impact can only help.
9/15/2023